Fiscal Policy and Economic Growth

Introduction

Fiscal Policy and Economic Growth

Although two-thirds of the federal government's expenditures are mandatory and many of the discretionary expenditures are not all that discretionary, even a small portion of the federal budget represents billions of dollars. Those billions can make a big difference to an industry, region, or segment of the population, and to the economy.

Moreover there are decisions about taxes, which may be even more important. Cutting taxes is popular, so elected officials are always happy to talk about it and sometimes actually do it (as President Kennedy did in 1963 and President Reagan did in 1981). Officials also occasionally raise taxes, which can profoundly affect the economy—and their careers.

This section examines fiscal policy—the budget decisions of the federal government—and its consequences. It also covers deficit spending and the national debt, both of which have been major topics in the public discussion about the economy.